I’m a bit confused about a set of problems on the Goodwill method on a discussion worksheet:
P, L, and O are partners with capital balances of $50,000, $30,000, and $20,000 and share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively. They agree to admit C for a 20% interest.
I understand the Goodwill Calculation for this part:
If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited to goodwill?
The $40,000 contribution implies a value of 40000/.20 = 200,000 for the partnership, and the intermediate value is 100000+ 40000 = 140000, which implies a goodwill of 60,000.
However, if C contributes $10,000, the answer is $15,000 =
Intermediate Value: (100000/.80)= 125000- 110000. Why can’t we use the same calculation as in the prior part? (10000/.2)= implied value 500000-110000?
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